Good jobs Friday
March blowout a sign of better things to come.
The labor market surged to its strongest level in seven months in March as the weather normalized from February’s brutal winter conditions and Covid vaccine distribution doubled to more than 2 million daily doses. The one-two punch accelerated the economy’s reopening and sent nonfarm payrolls soaring by a much stronger-than-expected gain of 916,000 jobs last month; January and February job gains were revised up an additional 156,000 jobs, too. March’s separate household survey tripled to a gain of 609,000 jobs, with outsized increases in the leisure & hospitality industry (which added 280,000 jobs), construction (110,000 jobs), education & health care (101,000 jobs) and manufacturing (53,000 jobs). This collectively drove the rate of unemployment down to a 1-year low of 6.0%.
Strong nonfarm payroll rebound March’s strong gain of 916,000 nonfarm payroll jobs was well above consensus forecasts for an increase of 660,000 (and our own more conservative forecast at Federated Hermes for a gain of 610,000). It nearly doubled February’s upwardly revised gain of 468,000 jobs (the preliminary increase was 379,000), which itself was double January’s upwardly revised final gain of 233,000 workers (up from 166,000).
Remember that December lost 306,000 jobs, so the powerful employment rebound we’ve enjoyed over the past three months is largely a function of the rapidly accelerating pace of vaccine distribution from Operation Warp Speed that began in December. As previously shut state and local economies continue to reopen, building toward adult herd immunity by Memorial Day, we expect this outsized pace of job creation to accelerate, and we may well be looking at some million-plus prints.
Private payrolls strong Private payrolls were a big surprise in March, rising by 780,000 jobs (versus the consensus estimate for a gain of 643,000). February was revised up by 93,000 jobs to a gain of 558,000, and January was revised up by another 22,000 jobs to a final gain of 122,000. December, in sharp contrast, lost 274,000 jobs.
March’s gain of 136,000 government jobs (versus a loss of 90,000 in February, when federal hiring only added 7,000 jobs) made up the difference between March’s nonfarm and private payrolls, with the rebound all due to strong state and local hiring trends as schools finally began to reopen. States added 46,000 jobs in March (50,000 in education), while local hiring added 83,000 workers (with another 76,000 in education).
Unemployment continues to improve The household survey, which is used to determine the jobless rate, tripled to a gain of 609,000 workers in March versus February’s 208,000 increase. The civilian labor force leapt by 347,000 employees, up sharply from February’s gain of 50,000 and January’s loss of 406,000. The number of unemployed workers continued to fall, dropping by 262,000 in March compared with declines of 158,000 in February and 606,000 in January.
As a result, the official rate of unemployment (U-3) fell to a 1-year low of 6.0% in March (versus 6.2% in February), sharply below its Covid crisis peak of 14.8% in April (the single worst month for the labor market since record-keeping began in 1939). The labor impairment (or underemployment) rate (U-6), which is a better and broader barometer of the labor market that includes both part-time and discouraged workers, fell more sharply to 10.7% in March from 11.1% in February, well below its record high of 22.9% in April 2020. Finally, the labor force participation rate ticked up to 61.5% in March, well above its trough of 60.2% in April 2020, which was a 47-year low.
K-shaped recovery improves sharply The unemployment rate for those with a bachelor’s degree or more ticked down to 3.7% in March, less than half its 8.4% peak in April 2020. And for those with less than a high school diploma, the unemployment rate plunged to 8.2% from 10.1% in February and 21.2% last April.
Hours worked rise and wages fall Hours worked per week rebounded to 34.9 in March from 34.6 in February, while average hourly earnings fell sharply to a 4.2% year-over-year (y/y) gain from February's 5.2% y/y gain. Counterintuitively, this actually is a positive indicator as it reflects the strong employment gains made by less-skilled, lower-paid workers over the past month, reducing average wage gains made across the entire economy.
Labor-market internals remain strong For the second consecutive month, hiring trends in leisure & hospitality were very strong as states continued the reopening of their economies, adding 280,000 jobs in March and 384,000 jobs in February after losses of 17,000 in January and 498,000 in December. Construction rebounded with 110,000 jobs in March, compared with a weather-impaired loss of 56,000 jobs in February. Education & health care added 101,000 jobs in March, nearly double February’s gain of 57,000 jobs, compared with losses of 14,000 in January and 29,000 in December, as more and more schools opened their doors again. Manufacturing hiring was an upside surprise, too, adding 53,000 jobs in March versus consensus at 35,000 and a gain of 18,000 in February and loss of 18,000 in January. At 64.7,the ISM manufacturing index hit a surprisingly strong 37-year high in March.
Mixed bag for ADP and claims ADP posted a weaker-than-expected gain of 517,000 jobs (consensus at 550,000), but February’s upwardly revised gain to 176,000 from the initial 117,000 more than offset that month’s miss. Getting into the weeds, small companies (with less than 50 employees) added 174,000 workers last month, more than triple the 48,000 hires in February. In addition, leisure & hospitality added 169,000 jobs, also more than triple the 51,000 added in February.
Initial weekly jobless claims (an important leading indicator for the labor market) have fallen by 88% from their revised peak of 6.15 million for the week that ended on April 4, 2020 to 719,000 for the week that just ended on March 27. Continuing claims (a better measure of the recovering health of the labor market) have fallen by 84% from their revised peak at 23.1 million for the week that ended on May 9, 2020 to 3.8 million for the week that ended on March 20.
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